sepheronx wrote:I am not saying to increase public debt significantly. But I am saying a small public debt increase isnt really bad as they can finish said projects without postponing or canceling it altogether.
In the years to come, we will see Russia reduce its debt again and reduce its budget to reflect realities. They wont rely on ideas like QE as we all know it is what is causing the economic rift in the world as it really isn't helping QE based countries economies besides superficial rating schemes like GDP. I don't entirely share the idea that CBR is out there to harm Russia but their methods of economics is very similar to various liberal countries whom have more economic problems than not, due to said policies (the idea of austerity is good. But the effects seem to be a spiral downhill effect in practice) and this is what they all have learned in the "Moscow school of higher economics", which I believe all of them came from (head of CBR, current economics minister, deputy economy minister, Kudrin, etc). And well, you are not gonna get a different economic system when all the economy ministers are cuts of the same cloth. Introducing systems like religious banking systems (Islamic and Christian) are good ideas. But their idea of keeping interest rates high to fight inflation is kinda archaic. We tried that here in the 80's in Canada with some pretty devastating consequences. But its effect did drop inflation and eventually they dropped interest rates and it really helped their economy grow.
So the ideas if keeping it high will help lower inflation and help increase the average persons disposable incomes as prices increase wont be nearly as high. With the introduction of all these new agribusiness as well, Russia may face a deflation in prices in meats and veggies. So I can understand CBRs ideas but the issue is what KVS says, the high rates is helping stunt GDP growth. All comes down to now businesses are cutting back and tightening their belts in order to keep revenue and profits the same. In turn, the companies may not invest in modernization or even new industries in fears of their investments going to waste and having to pay back a high premium, which would heavily eat into their profits. KVS is semi right, the ideas are that they have been doing a QE concept for years but nowhere near the extent of what QE figures are now.
Actually the money supply growth has decreased dramatically in the last 5 years. It was running around 50% for the 2000-2010 period.
The point is that this monetarist does not even acknowledge the fact that "QE" was operating on a very large scale in Russia and
pretends that all QE is bad QE. QE is bad if and only if the economy is fully monetized, i.e. saturated in terms of money supply.
But Russia is still undergoing a transition from the command economy regime even if it has been 25 years. You can see the
price structure in the US military-industrial complex, it is still much lower than in the developed west.
Instead, it was the low interest rates that CBR was able to provide was through its form of QE (they print and loan to banks). Foreign loans were of course if lower interest so government, mixed in with private institutions obtaining it. Now that is gone (not entirely gone. There are apparently joint Russian/Chinese banks whom are still involved in Russian economy, and same with some other institutions). So once the inflation drops and CBR can start lowering interests, then Russia can start borrowing from the CBR which increases the public debt. In turn, when it is paid off, the money stays within the country. Goes back to CBR and Sberbank. If course, the high interest rates now is not ideal for Russia to obtain loans from CBR.
So what are other methods? Well, Glazyev's idea was that CBR provides loans to the banks at 0% interest rates through its own form of QE, so that banks can then provide loans to others. But here is the catch, it COULD increase the inflation. But for some reason, in the west it creates a deflation. Something of that makes absolutely no sense. So obviously, the game is rigged. But the good thing is, people are slowly, but surely falling away form actually trusting the US economy (hence my comment about the printing money idea). Other methods is simply allowing inflation to increase, increase money supply greatly, then fight to lower inflation again. England did this for decades and worked for them.
The CBR should could the interest rate to 5% and see what happens. If there is any evidence of serious inflation increase, then
they can increase it again. But they have to wait long enough for any initial inflation transient to work itself out. The economy
as a dynamical system is not perfectly predictable and control processes such as money supply and interest rate adjustment
need trial and error approaches. The CBR is reckless by jacking the interest rate to some arbitrary high value to control inflation
that it can't even properly quantify. This kills economy growth.
The CBR is clearly categorizing the post-Soviet transition transient as inflation. This is criminal negligence. This long
term price adjustment does not respond to interest rates.
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sepheronx
